Private equity is in the news a lot lately. It’s the highest-returning asset class in recent memory and responsible for many high-profile failures. For populist politics, those things logically fit together and make it an easy target.
But let's not forget reality...
But let's not forget reality...
I’m not defender of traditional PE. In fact, one endowment called @adventur_es the opposite of PE (derogatorily). But, PE isn’t a monolith and neither are sellers.
PE encompasses the ownership of non-public assets, from real estate to early stage to buyouts to biotech.
PE encompasses the ownership of non-public assets, from real estate to early stage to buyouts to biotech.
@adventur_es The variety is astoundingly large and to lump all PE into one bucket, either to praise or to slander, is imprecise at best.
In the buyout bucket alone, styles vary greatly. The standard buy, lever, strip, and flip, is alive and well.
See: berkeleyside.com/2019/11/07/buy…
In the buyout bucket alone, styles vary greatly. The standard buy, lever, strip, and flip, is alive and well.
See: berkeleyside.com/2019/11/07/buy…
@adventur_es Others, like @adventur_es and some family offices, have long time horizons and don’t use much debt. Some are focused on cost cutting, while others use growth to drive returns. Some partner with leadership, others replace management.
And there’s every flavor in between.
And there’s every flavor in between.
@adventur_es What’s talked about less are the dynamics around selling.
To state the obvious, sellers choose buyers. No one is forcing a seller to sell. That means when a big, bad private equity firm is in the news for pillaging, a seller chose that group to do the deal.
To state the obvious, sellers choose buyers. No one is forcing a seller to sell. That means when a big, bad private equity firm is in the news for pillaging, a seller chose that group to do the deal.
@adventur_es PE is merely a mirror of seller desires. If all a seller cares about is getting the biggest check at close, someone is usually willing to load it up with gobs of senior and mezz debt, put in as little equity as possible, and toss the coin.
@adventur_es For someone to look at that situation and blame merely the buyer as “extractive” is nonsense. The seller had just as much complicity, and perhaps more. There are almost always other options out there and they chose to let the fox into the hen house. They know what foxes do.
@adventur_es To be fair, some sellers are duped. Every PE shop says basically the same thing in the same way. “We’re a value-add partner…blah blah blah.”
Don't believe me? Start Googling. Just pick a river and a street at random, then combine them. Chances are it will be a PE firm.
Don't believe me? Start Googling. Just pick a river and a street at random, then combine them. Chances are it will be a PE firm.
@adventur_es Deceptive PE firms don’t stay in business long. If it was going to be levered, stripped, and flipped, it was plainly said in the documents for everyone to see.
Ok, rant complete. There’s a better way than traditional LBOs, but let’s make sure we’re casting blame appropriately.
Ok, rant complete. There’s a better way than traditional LBOs, but let’s make sure we’re casting blame appropriately.
